Wednesday, November 16, 2011

What would Bill do?

In this current issue of Time, former president Bill Clinton discusses the state of the American economy with managing editor, Rick Stengel. Here are some excerpts of that insightful conversation: source

So what has happened to the economy and the U.S. over the past 30 years?

First of all, we face more and more intense competition from around the world, and at the same time we have adopted—­except in the eight years I served and the first two years President Obama was ­serving—this anti­government philosophy, which has mostly, as I point out, been an antitax and an anti­regulation philosophy, so that we have dramatically increased the national debt and our reliance on other countries to fund it. Now we are facing the retirement of the baby boomers and once again a dramatic increase in health care cost. So we have to figure out a way to put the country in the future business. We have to get ahold of the long-term debt problem, and we have to revitalize the private sector. And you can’t do it with an anti­government strategy. You have to have a smart government and a strong economy. That’s basically the argument of the book.

Could you briefly talk about some ways to create jobs that we’re not using now and why banks and corporations are sitting on so much cash?

Well, the banks have about $2.2 trillion in cash uncommitted to loans. And they need to hold somewhere between $160 billion and $200 billion of that because they have their own mortgages that are still uncertain. But they could loan in theory, at conservative ratios of 10-to-1, $20 trillion. Obviously, if that happened, the recession would be over in 15 seconds. Pepperdine, a conservative university, did a study showing that 40% of the small businesses said they would expand their operations and hire more people if they could get credit, and they can’t get credit. We’ve got to clean these bank books up. Once that happens, it will dramatically boost confidence. Right now, everybody’s frozen in place. And by far the biggest thing we could do is to have a more aggressive move on the home-mortgage problem. All the various players are reluctant to do it, but we need to do it.

What will make banks start spending cash?

You’ve got a lot of cash being held overseas. The last time it was brought back, President Bush made a good-faith effort to get it reinvested in the economy in 2005, and he let corporations bring it back at a tax rate of 5.25%. So what I think we should do now is say, You bring this money back while we’re debating the corporate tax reform for free if you can prove you increase net employment. For everybody you increase net employment on, you get that much credit for free. If you want to spend it on whatever you want, pay the long-term capital gains rate, 15%.

My take aways are:

1. Bill Clinton is brilliant at taking mountains of information and data and succinctly framing the main issue in easy to understand language.

2. He is essentially saying that bankers - bailed out by American taxpayers - could effectively end our job crisis and recession by loosing up credit. This is a drum that can not be beat to death; and this underscores the anger behind the Occupy Wall Street movement - the 1% is holding our country hostage.

The interview ended with a question that shined the light on the deep rooted hypocrisy of the GOP and Tea Party folks.

Speaking of policies, you balanced the budget and cut the size of the government. How come you’re not a hero of the Tea Party?

I thought I should’ve been their favorite politician. I think because I didn’t do it according to the ideology. I raised taxes and cut spending. I did it with a mix of policies that also left us money to invest in our future and in our quality of life. I think that’s really important. There are some things that the government has to do because the private sector does not have the capacity to advance the public interest in that way.
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